Dividends

The valuation formulas described here do not take dividends into account. That's okay for the most part because relatively few stocks pay significant dividends. Some do, however, and in these instances, the dividend payout should be considered when valuing the stock. One way to estimate the value added by dividends is to divide the annual dividend payout by the AAA corporate bond rate. For instance, if a company is paying $1.00 per share annually, and the corporate bond rate is 7 percent, the value added by the dividend is $14.28 ($1.00/0.07). That equation assumes that the dividend payout will continue indefinitely at the same level. Dividends growing over time would warrant a higher valuation.